By Dr AbdelGadir Warsama, Legal Counsel
As clearly observed the volume of syndicated loans has increased dramatically due to continuous expansion of international trade, moreover, the effect of globalization in linking trade activities and other economic and financial factors. A syndicated loan, in principle, is a banking credit or a term finance agreement for certain big mega project normally undertaken by a single borrower (s) and financed by a group of banks or credit institutions. Basically, this group should somehow be interested in the project and due to this interest factor they are joining forces to offer the finance and or other credit facilities.
As a matter of practice, in most cases, there is always one bank or financial institution arranging the whole issue from its initial stages and undertakes all necessary feasibility studies or research work. This body is called the “manager” or “leader” of the syndicated loan and, as we know in the banking sector, nowadays there are certain specialized banks or bodies for arranging and offering syndicated loans, as their main business.
Legally speaking, there are certain particulars and legal provisions that should be available in all syndicated loans documentation and other legal papers / documents about the loan. These particulars normally include, inter alia, the agents’ names. Herein, the syndicated loan agreement should specifically mention the names and all related necessary details of all agents involved in the deal including the names of banks, financial institutions, credit entities etc… and the role of each one of the agents. The bank facilities, herein, it is very important to mention the credit loans and facilities to be paid or arranged by each member bank or financial institution, the method of payment of these facilities / loans, the payment of interest and its amount, type of currencies, the duration of payment… etc.
The documents related to the facilities, herein, to refer to all legal documents that are required before payment of the facilities such as, incorporation and registration documents of borrowing entities, authenticated Board Resolutions and necessary powers of attorney related to the transaction showing authorized personnel and limits (if any) regarding the authority, authorized signatures, financial statements for certain required period, audited balance sheets… etc.
The common Terms agreement, this normally includes details of the syndicated loan agreement between financing parties and the method of implementation of the agreement vis-a-vis the role of each individual party, the role of the “lead bank” and the specific role of all participating agents, legal obligations of the borrower, duration of the syndication, other necessary details which may vary from one agreement to another according to the particular requirements of each agreement…etc.
The common terms agreement is normally regarded as the backbone or the base of the syndicated agreement and, therefore, it should mention every point in clear details. The “lead” or “manager bank” normally prepares the legal and other required documents in consultation with all financers, the legal advisors, other concerned parties and the borrower (s).
The syndicated loan agreement is of very special legal and banking nature due to the fact that it regulates and governs a big banking transaction between many different parties from different places. This fact requires the importance of giving specific details for certain events that are to be taken as “events of default” according to the country or region where they are taking place. Certain syndicated agreements, as we know, may be concluded between banks from different parts of the world and different jurisdictions such as Europe, America, Japan, Middle East, etc. This unique situation makes it obligatory to mention in the agreement, and to agree by all parties, on all possible “events of default” in the syndicated loan agreement. In fact, there are many difficulties in this area which requires careful consideration at the time of negotiation.
Another important issue is the “governing law & Jurisdiction” to govern the agreement. As explained above the syndicated loan agreement is a legal bond between different parties from different places and jurisdictions. Based on this fact the parties should agree on the governing law in case there is any dispute between the contracting parties during the implementation of the terms of the agreement. We believe that it is important to mention at this stage, that in some syndicated agreements there is reference to more than one governing law. Whether this approach creates problems during implementation or not, this is a different issue not for discussion in this article.
In addition to choosing the governing law in the agreement, the competent courts having the exclusive jurisdiction over any dispute should also be mentioned in the loan documents. It would be advisable to mention that, it is always most appropriate to give the jurisdiction to the courts applying the same governing law. In other words, if the English law is chosen as the governing law, then, it would be better to give jurisdiction to the English courts because they are the best courts, compared to other courts, to understand and implement the English law. We believe that, mixture between different governing laws and different courts could create some practical problems during the course of the implementation of the agreement.
In addition to the abovementioned details, the syndicated loan agreement legal documents should highlight and include many other particulars such as:
The accession process, as during the tenure of the agreement, due to many factors, new members could be interested to join the agreement. This in practice, could take place and based on this and to legalize the relation between the new comer (s) and other existing parties the agreement should contain certain provisions to regulate this relation. The extent and the limit of the role and legal duties of the new comer(s) should be clearly defined and agreed upon.
The assignment process, details regarding assignment should be mentioned in the loan agreement, particularly the need for obtaining the prior approval of each and any of the contracting parties. The syndicated loan agreement should also highlight the instances of approval and or disapproval of assignment.
As confidentiality of information is a golden rule in all banking transactions and as an exemption to this rule, the loan documents should include very specific provisions to regulate disclosure of information between the syndication parties. The limits of disclosure, the duration, the type of information to be disclosed and circumstances wherein disclosure is permitted …etc.
The above indicates the most important legal issues to be provided for in the syndicated loan agreement, however, there are other issues / points to be mentioned in the loan agreement such as the required information regarding the communication addresses of each party, the electronic correspondence whenever applicable, reference to schedules and tables containing necessary information and their attachment to the legal documents, authorized signature of documents and effective date of the syndicated loan agreement….
In conclusion, needless to say, drafting and preparation of the necessary documentation for syndicated loans is in need of certain special skills, in addition to patience and careful handling of all details otherwise it may jeopardize the interests of the contracting parties and could lead to bitter endless legal difficulties.